Jennifer Adams considers whether employing family members can be a useful strategy to reduce the tax liability for an owner-managed business.
With an owner-managed company, a family member could be a shareholder as well as an employee, and payments from the company can be a mixture of salary, bonus, benefits (including the £300 employee 'trivial ’gifts' allowance) and dividends, thereby not only reducing the company’s tax bill but enabling withdrawals at potentially a lower personal tax rate than if a sole director-shareholder runs the company.
Other non-tax reasons for employing a family member include enabling that employee to be given National Insurance contributions (NICs) credit towards their state pension entitlement. In addition, an employee's salary counts as relevant earnings for private pension contributions purposes – making the family member a director (even with just the
